Exits Still A Challenge for Middle East Buyout Funds, Carlyle Says

The U.S. private equity giant Carlyle Group sees achieving asset sales and delivering returns to investors as the biggest challenge for managers in the Middle East and North Africa even as regional markets and economies rebound from the global recession.

Many Middle Eastern private equity funds have had trouble offloading investments since the financial crisis brought merger and acquisition and IPO activity to a virtual halt.

Recent signs, however, point to a tentative pick-up. The Abu Dhabi-based Gulf Capital, for example, made a partial exit earlier this month of its oilfield services company Gulf Marine Services through a London listing.

Carlyle is also lining up exits, including the sale of its 30% stake in a Saudi Arabian lighting company to Dutch technology giant Royal Philips, announced on Monday. At the end of last year, Carlyle’s $500 million MENA fund also reached a deal along with its co-investors to sell shares in Medical Park, a Turkish hospital chain, to another private equity investor. That deal has yet to close.

While Carlyle’s recent sales haven’t involved IPOs, Firas Nasir, the co-head of Mena buyouts, said that was his firm’s preference. Carlyle needed to have a clear path to exit when it made investments, he said, which is why the focus with the five-year-old MENA fund has been on strong, market-leading brands in defensive industries.

“IPO is our preferred path,” Mr. Nasir said. “It’s an exit you can control if you have a good company. The stock markets in the region are eager to publicly list sound businesses.”

Carlyle didn’t disclose how much it would make from this week’s sale of Saudi’s General Lighting Co., although Philips said it was paying Carlyle and other investors $235 million for a 51% stake. General Lighting had been planning to do an IPO in Saudi before the opportunity to sell to Philips arose.

“It was a successful exit and met our returns criteria,” Mr. Nasir said, adding that it was an example of Carlyle partnering with a family-owned business and helping transform it into a full-fledged corporation. “What we did from the beginning is turn this Saudi-focused business into something much more international.”

Carlyle’s MENA Partners fund might make one more investment before it’s fully deployed, Mr. Nasir said, although he wouldn’t say if a fresh round of fund-raising was in the works.

The fund’s remaining investments – they include a Turkish clothing manufacturer, a Saudi franchiser of Domino’s and Wendy’s fast food restaurant and a Turkish private schools company – won’t be ready to exit for at least another two years, Mr. Nasir said. If all goes well, local stock markets might be an ideal destination for those assets.

“Especially Saudi Arabia has got their act together with respect to the regulatory structure and the steps needed to take a company public,” Mr. Nasir said.